It’s Boom Time for Construction in Brazil and the World Is Chipping In

Brazilian wins Japan's World Skills Competition

Brazil’s construction industry is developing at full steam and, in the works
being launched all the time throughout the country, foreign investment in the
field is increasing even further. Just to give an idea, if the sector presented
growth of 4.6% in 2006 and forecasts point to a 7% growth this year, foreign
capital inflow rose from US$ 321 million in the whole of last year to US$ 900
million from January to July of 2007 alone.

In the first seven months of 2006, investments totaled just US$ 72 million, according to data supplied by the Brazilian Chamber of Civil Construction (CBIC).

And each additional percentage point is important to an activity that answers to 5.4% of the country’s Gross Domestic Product (GDP), or 108.7 billion Brazilian reais (US$ 61 billion), comprises approximately 100,000 companies and employs over 5.6 million people.

“The macroeconomic impact created by investments in the industry is key to the development of any country,” said the president of CBIC, Paulo Simão, who asserted that the construction industry has already played a much greater role in the Brazilian economy in the past.

Economist Cláudio César Paiva, a specialist in the field, states that total foreign investment in Brazil is even greater than verified by the CBIC, if one considers the capital harvested by Brazilian companies on the foreign market.

Two examples are Gafisa and Cyrela, which are among the best known real-estate developers in Brazil. Foreigners now own 86% of the Gafisa capital, according to the company’s investor relations manager, Bruno Teixeira.

In the case of Cyrela, foreigners own 60% of the company’s traded shares, according to the investor relations director at the organization, Luis Largman.

“By selling shares on the stock market, which has been taking place in the United States and Great Britain for a long time now, companies have discovered an important channel for attracting investment,” said Paiva, who holds a doctorate in economics from the University of Campinas (Unicamp), in the southeastern Brazilian state of São Paulo and is a Professor at Cândido Mendes University, in Rio de Janeiro, also in the southeast. It is the junction of capital and know-how in the domestic market.

With the growth of the industry and of the direct investment inflow into the country, which should reach US$ 35 billion this year, Paiva forecasts that in the next two years, foreign investors are going to apply approximately US$ 5 billion a year in the Brazilian construction industry.

“One of the trends underway is that of foreign partnerships by large construction companies,” said Paiva. These partnerships might occur in a variety of manners, such as establishing joint ventures, purchasing shares of national companies and making direct investment in enterprises.

“The increase in foreign investment up to July was significant, but the volume is still very low,” said the Professor, alluding to the US$ 900 million that entered the country in the first seven months of the year.

“To have an idea, during the same period, China attracted US$ 5 billion, even though the country has enormous restrictions to the entry of foreign capital into construction. This goes to show how the business may still grow in Brazil,” he concluded.

Along the same lines, Paulo Simão, of CBIC, says that Brazil runs an 8-million habitation deficit, has a huge demand for infrastructure work and a developing economy that needs these enterprises.

“That is, we have a scenery that is favorable to lots of construction work.” As well as the metropolises, the interior of the country also needs investment, which means that there is investment to be done far beyond the large urban centers,” he claims.

“The Brazilian real estate market presented little expressive appreciation over the last 20 years, which makes investment in residential and commercial real estate a very attractive option,” states Luis Largman, of Cyrela.

“Perspectives for the sector are very positive, especially with the greater availability of credit and the reduction of interest rates. If Brazil is rated “Investment Grade”, it is possible that the country may receive even greater investment,” added Bruno Teixeira, from Gafisa.

Analysts believe that the country should be granted “Investment Grade” by international rating agencies in either 2008 or 2009.


Added to demand are other factors pointing to continued growth in the sector and foreign investment, among them macroeconomic stability in the country, reduction of interest rates and ample offer of credit.

To Paiva, the mortgage crisis in the United States also benefits industry in Brazil, as investor aversion to risk, also in the case of North Americans, makes them seek other markets to invest their money in.

In a similar manner, the economist expects a redirection of funds that were initially turned to China, as, according to him, the country has been restricting foreign investment in the sector.

“Nowadays you can only buy a house in China if you are going to live there for a year. This was previously allowed if the investor made a joint venture with a local partner. With this, the Chinese government reduced the possibility of a real estate bubble, avoiding what has taken place in the United States,” he declared.

For the time being, according to Paiva, foreign funds and banks, especially from the United States, Germany and the United Kingdom, have been investing in business in great centers, like São Paulo and Rio de Janeiro, especially in high-end commercial and residential enterprises, whereas investors from Portugal and Spain prefer hospitality projects in the Northeast of the country.

These works, in his evaluation, have been generating good return. At Gafisa, for example, 66% of the investors are North American, 14% Brazilian and 5% British.

The tendency is for the origin of capital to be diversified. Arab investors, especially in the Gulf, have been investing heavily in construction in the Middle East and North Africa. “The scenery there is very good for construction and that is something to be explored, seen with different eyes,” pointed out Paiva.

Largman, from Cyrela, for example, says that the company has great relations with Arab investors and that all investment is welcome. Teixeira, from Gafisa, said that the company has already received Arabs interested in shares.

In turn, construction companies are advancing in other sectors of the industry, like the construction of low-income housing. Although profitability in this sector is lower, requiring the construction of a large number of units, there is in the country an expressive volume of credit to finance these works.

“In the residential sector, due to the growth in the volume of real estate credit, expectations are very positive,” stated Simão. According to him, last year alone a total of 9.34 billion reais (US$ 5.24 billion) were invested from the Brazilian System of Savings and Loans (SBPE) and another 8.46 billion reais (US$ 4.74 billion) from the Severance Pay Indemnity Fund (FGTS).

Lack of Credibility

More than demand, credit and know-how were necessary for the Brazilian industry to attract foreign attention. Greater credibility was essential. According to Paulo Simão, from the CEBIC, there was a reduction in foreign investment that began in the 1980s. Up to the end of the 1990s, the sector’s capital was mostly domestic.

Added to that was the bankruptcy of construction company Encol. In 1997 the company, one of the largest in the country, became insolvent and finally went under, in 1999, leaving over 600 projects unfinished and thousands of buyers in dread. According to Paiva, the episode left a “dark mark” in the sector that took a long time to dissipate.

A marker of the change of this scenery was approval by the National Congress of Law 10,931 of 2004, which deals with reclaiming real estate. Originally this institute was inserted in Brazilian law in 2001, but through a provisional measure. Basically it separates the assets of a construction site from the construction company’s assets, avoiding the possibility of the enterprise being used as collateral for debts. In case of bankruptcy, the enterprise is left out of the bankrupt estate.

The law also obliges the company to make the project transparent, making it possible for buyers and investors to have greater control over execution. “It granted greater legal security to the players involved in real estate transactions and, thus, boosted business in the building sector,” stated Paulo Simão.

And the infrastructure sector is also interesting. To Simão the Brazilian government’s Growth Acceleration Program (PAC), launched early this year by the federal government forecasts investment of 503.9 billion reais (US$ 282.5 billion) in public and private investment in the area between 2007 and 2010, in enterprises in the areas of oil, energy, transportation, sanitation and habitation.

To supply this demand, the industry needs more labour, and labour that is better qualified, to deal with the new technologies and cost reduction needs.

Cyrela and Gafisa

Brazil has recently been undergoing a bona fide capital listing fever, and construction companies are no exception. Real estate developers Gafisa and Cyrela are two examples. Cyrela made its first public offering of shares in 2005. From then on, according to the investor relations director Luis Largman, the capital market has been the company’s leading resource for attracting foreign investment.

“We do have a joint venture in Argentina, named Cyrsa, but most of the participation of foreign investors takes place by means of the capital market,” said the executive. By his calculations, foreign capital has a 60% share in the company stock traded in the São Paulo Stock Exchange (Bovespa).

With Gafisa it is no different. According to investor relations manager Bruno Teixeira, foreign investment is attracted by means of shares traded on Bovespa and of ADRs traded in the Nova York Stock Exchange. The company started receiving foreign capitals in 2005 as well, when United States-based Equity International, owned by investor Samuel Zell, bought 32% of its capital. Presently, Equity International owns 14% of the Brazilian company, but remains as the leading foreign investor.

In the case of Cyrela, despite investment funds being the leading investors, Largman says the company already has a significant number of natural persons as investors. Public offerings of shares have been attracting the attention of small investors in Brazil.

To the president at the Brazilian Chamber of Civil Construction (CBIC), Paulo Simão, the opening of capital by companies in the sector in recent years has enabled the inflow of a greater volume of foreign capital to the industry. “The opening of capital is a natural part in the maturing process of companies and of the market itself, it is part of the global economy and, judging from the interest shown by other companies, it can become a trend,” he states.

Management Skills

The growth of the construction sector in Brazil has been impacting directly in the generation of jobs. A sector that traditionally employs one of the largest workforces in the country, it recorded a 19.3% increase in number of positions from January to October this year, according to the Employment and Unemployment Survey (PED) conducted by the State Data Analysis System Foundation (Seade) and the Inter-Union Department of Statistics and Socio-Economic Studies (Dieese), disclosed last week.

“In the period ranging from January to July 2007, civil construction in Brazil created 116,467 new formal job positions,” stated the president of the CBIC, Paulo Simão. “To invest in civil construction is to invest in the country’s socio-economic development,” he claimed. But more than workers, construction companies seek increasingly skilled professionals.

This demand has been reflecting in the demand for training courses, such as the ones offered by the National Service of Industrial Education (Senai), which has increased significantly. “We are noticing this increase, especially due to the PAC (Growth Acceleration Program of the Brazilian government), with investment in infrastructure and heavy construction,” said the executive manager for professional education at Senai, Alberto Borges Araújo.

According to him, even states that used to have a low demand for this type of service are now presenting high demand. “Such is the case with (the northern Brazilian state of) Rondônia, which currently has a demand for approximately 25,000 professionals, due to the construction of the hydroelectric power plant on the Madeira River and other large works,” stated Araújo.

But large public works are not the only ones calling for workforce. Private enterprises are demanding professionals who have a broader view of their work, which has led to a change in worker profiles. “And it is not just about new qualifications, but also new competencies, even for occupations that are traditional within the segment,” said Araújo.

In other words, it is not enough for a builder to erect a flawless wall: he also needs to be able to calculate the exact volume of material needed, in order to avoid waste and, therefore, reduce costs. This calls for workers with a higher level of education.

To that extent, according to Araújo, Senai has established partnerships with the Social Service for Industry (Sesi), which operates in basic education, and with public organizations, so that educational needs are fulfilled in parallel with professional training.

“Senai and Sesi teach many courses at construction sites, such as the foreman course, for instance,” said the professional certification manager at Senai, Paulo Rech. “For the new professional, it is not enough to have technical qualification, he needs to have management skills, to know how to meet budgets and deadlines,” he complemented.

Program Education for the New Industry was created by the National Confederation of Industries (CNI), an institution to which Senai and Sesi are linked. It forecasts investments of 10.45 billion Brazilian reais (US$ 5.8 billion) to ensure basic and professional education to 16.2 million Brazilians until 2010, being 7.1 million in basic and continued education and 9.1 million in professional education.

The plan was elaborated based on the demand for a new professional profile, the emergence of new industrial regions, the development of new technologies and the acceleration of economic growth. It follows the Strategic Industry Map, elaborated by the CNI, which sets out priorities for the sector’s development from 2007 to 2015.

Investing in Training

Senai offers courses for free and by means of partnerships with public organizations, non-governmental organizations, sector organizations and companies. In the civil construction field, companies that manufacture materials are also seeking agreements with the institution.

Paulo Rech cited the example of Portobello, a maker of ceramic facings, which signed an agreement with Senai to train installers for its products. Pipes and fittings manufacturers Amanco and Tigre did the same, in order to train plumbers.

Those companies, according to Rech, invest in training so that workers will know how to handle the products adequately, thus preventing the blame for an incorrect installation to be placed on the material.

“When something goes wrong, the consumer often ends up blaming the product,” he said. “Sometimes, due to not having any experience, the installer ends up putting the product’s effectiveness in check,” stated Araújo. The organization has agreements with most of the states of the Federation.

Presently, Senai is conducting a survey in order to find, in further detail, what is the professional profile that the sector is seeking, according to the technological information manager, Wellington da Silva.

From the very start, he says, workers must be able to deal with high technologies. Within the same line of work, the organization seeks to unearth the best practices adopted in industries across the country, in order to make the sector level throughout the country. Thus, a skilled worker will be able to work in different states within the same parameters.

Top-Class Education

The quality of its professional training courses has earned Brazil the second place in this year’s edition of the WorldSkills, the leading international professional education championship, held last month in Japan. In average points scored, the Brazilian team finished second only to South Korea. This was the best result ever achieved by Senai students in 13 participations in the event.

In performances divided by category, the Brazilians earned two gold medals, three silver medals, four bronze medals and seven diplomas of excellence. One of the medal winners is Lucas Gonçalves, a 20-year-old born in the southernmost Brazilian state of Rio Grande do Sul who finished first in the Refrigeration category.

He lives in the city of Canoas, in the Greater Porto Alegre (capital of the state), with his mother and two brothers. He always attended public schools, and the training courses appealed to him as an opportunity of finding a good job.

“I had already taken a basic mechanics course at Senai, at age 14. Later on, at 16 years of age, I entered a technical course in the HVAC [heating, ventilation and air conditioning] and refrigeration field,” Gonçalves revealed.

By means of an agreement between the National Service of Industrial Education (Senai) and the Ministry of Education (Mec), turned to secondary public school students, he took the courses for free. Now, besides getting a job, he wants to attend a mechanical engineering college.

With regard to his first wish, he may rest assured, according to the director at Senai’s Visconde de Mauá School of Professional Education, in Porto Alegre, Clóvis Leopoldo Reich. “We have proposed for him to join our team and work as a multiplier of his experience,” said Reich.

During the tournament, Gonçalves had to assemble an entire refrigeration system, and to detect and fix electrical and mechanical malfunctions in machines already installed, against a running clock. “The competition was four days long,” he said.

He specializes in a variety of tasks, such as installing air conditioning devices, walk-in coolers, industrial refrigeration, and implementing systems in entire buildings. He believes that the education he received, coupled with the award, will give him an advantage in seeking a job, including the fact that in order to participate in the competition, he underwent an advanced training program that lasted two years.

“The training provided me with a different view, compared with other students,” he claimed. “I was able to know new technologies, things that are not available to all,” he stated. To Gonçalves, the labor market calls for increasingly prepared professionals. “As new devices are launched, I must always be aware of all the information I can get hold of,” he said.

The other gold medal was awarded to Anderson Carlos Moreira, from the northeastern Brazilian state of Pernambuco, in the Software Application field. The silver medals were won in the Mechatronics, CNC milling and Web Design categories.

Bronze medals were awarded to Polymechanics, Mechanical Drawing using CAD, Integrated Manufacture, and PC Network Installation; and the diplomas of excellence were awarded in the categories CNC Bar Machine, Soldering, Industrial Electronics, Electricity for Buildings, Industrial Electricity, Jewelry, and Graphic Design.

The Senai maintains international cooperation agreements, both for incorporating practices that were successful in other countries, and for transferring experiences that were successful in Brazil.

Anba –


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